If MakerDAO’s [MKR] When co-founder presented the endgame plan for the protocol, community members hoped for a change in decision-making and governance mechanisms. It’s been over a month now, and a new report from Crypto Risk Assessments pointed to the impact this plan could have. This included the threat this could pose to Curve Finance [CRV].
What is the “Endgame”?
The endgame plan was presented by MakerDAO co-founder Rune Christensen. The plan was put in place to further decentralize the protocol and make it more resilient to regulators.
“The Endgame Plan is an ambitious initiative that aims to create a finite roadmap for MakerDAO that leads step-by-step towards a predetermined, immutable end state many years into the future, while vastly improving governance dynamics and raw power of modern DeFi is tapped into innovation.” The initial read proposal.
The original plan also included plans for DAI, a stablecoin on Ethereum [ETH] Blockchain. TThe plan was that it would maintain a 1:1 USD ratio for at least three years. Therefore, when the protocol reaches and maintains 75% decentralized collateral, this bond is maintained.
Where’s the threat?
Well, in that ambitious plan, there was something called DAI free floating Approach. Christensen believed it was necessary to allow DAO to float freely in order to limit the threats to MakerDAO’s RWA collateral.
RWA collateral was basically the minimum amount of capital/assets required to be held by the protocol to ensure solvency. Free floating DAI was a controversial but likely possibility. What made it controversial was its potential impact on liquidity pools like 3pool, metapools, etc.
The report by Crypto Risk Assessments also stated that if the price of DAI goes down, holders will try to unload it at the best possible price. As MakerDAO’s Peg Stability Module (PSM) will offer a lower rate, users will exit their DAI positions using liquidity pools. This would thus result in increased holding by the pools.
Arbitrage bots and users can take advantage of this opportunity resulting in DAI accumulating in liquidity pools as the bots would drain its other two holdings, USDC and USDT. The pools will therefore be forced to eliminate liquidity, i.e. stablecoins other than DAI, before the DAI exchange rate could match that of the negative repayment rate of the PSM.
Curve Finance’s 3pool may need to initiate a protocol restructure if DAI becomes free-floating. Such a reorganization will disrupt the $861 million pool, which has more than $40 million in daily volume.
Recommendations for curve
Therefore, the risk team at Crypto Risk Assessments outlined a possible course of action for Curve to mitigate losses. The platform must pass a DAO vote for a USDC + USDT base pool that would receive CRV issuance.
The team also recommended that the Curve community consider a new management fee token. Additionally, a possible transition before MakerDAO could kick off its landmark endgame plan.
Christensen originally came up with the controversial plan in response to the US Treasury Department’s sanctioning of Tornado Cash. Sensing regulatory pressure, he presented two paths for the protocol, the compliance path or the decentralization path.
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